U.S.-EU Trade Tensions: Causes, Consequences, and Possible Cures

Publication Date: May 2002

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

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Abstract:

The United States and the European Union (EU) share a large and mutually beneficial trade and investment relationship. Given a huge volume of commercial interactions, trade tensions and disputes are not unexpected. While trade tensions in the past have tended to ebb and flow, some observers believe that this year's threat of a trade war is more serious than before.

A dispute over steel trade is the proximate cause of rising trade tensions, but other high-profile disputes involving tax breaks for U.S. exporters and the treatment of genetically-engineered (GE) products lurk in the background. The steel dispute is characterized by feelings on both sides of the Atlantic that the other side has taken actions that are unreasonable and inconsistent with the rules of the World Trade Organization (WTO). Moreover, both Washington and Brussels have played hardball in crafting retaliation lists aimed at influencing each other's domestic political process.

While fears of an all-out trade war are likely exaggerated, the trade disputes may impede U.S.-EU cooperation in other areas. A number of ways have been suggested to diffuse current trade tensions including greater reliance on compensation as opposed to retaliation and greater emphasis on diplomatic as opposed to legalistic solutions to disputes. While potentially helpful, the fact that some of these high-profile disputes have been unresolved for decades suggests the difficulty of finding permanent solutions. Congress has a strong interest in these disputes and plays a significant legislative role, particularly on the export subsidy issue. This report will be updated as events warrant.